It's Now Clear Why Amazon Is Making A Phone — And Why People Will Buy It (AMZN)

Source: http://www.businessinsider.com/amazon-ad-for-fire-phone-2014-7

Amazon's first ad for the Fire Phone makes a simple, direct pitch: Buy the phone, and you'll get videos and games from Amazon Prime for free. Simple as that.

The Verge thinks it's a "strange" choice for a TV commercial, but I beg to differ. The Amazon phone is expensive and doesn't have the features to compete with Apple's iPhone or Samsung's Galaxy line. It begs the question, why would Amazon bother to get into the super-competitive phone business? Samsung and Apple already split all the profits in the business between them. It's virtually impossible even for well-resourced companies like HTC or Motorola to get a toehold in the market. After Apple and Samsung, the third biggest slice of phone market share globally belongs to Huawei, with just 4.7%, according Strategy Analytics.

And Amazon is likely losing money on the Fire phone.

The one advantage it does have is all the free content and shipping you can get from Amazon for buying one. Amazon doesn't need to dominate the phone business like Apple or Samsung. All it needs is to add incremental users who shop heavily on Amazon and stay tied in to Amazon's attractive ecosystem of low-cost stuff (Amazon has a policy of insisting on the lowest prices possible from its vendors) coupled with free stuff (movies and games in this case) coupled with free shippin! g (Amazo n Prime) on anything else you buy.

Once those customers are tied in more heavily through their phones, they're basically just more shopping revenue for Amazon.

And if you use Amazon a lot but don't need the very best phone on the market, then the Fire phone probably looks a pretty good deal. Why not get all your movies and shipping free for a year? Here's the spot:

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